Hey, Hey, My, My

Buy and hold investing will never die.

Usually during bear markets and sideways markets a series of articles comes out that claims buy and hold investing is dead. The idea is often advanced by brokers who stand to gain from trading commissions. And a few fortunate souls trot out their record returns, which  they achieved by going to cash when the market went down, and getting back into stocks as the market goes back up.

But timing the market is exceptionally difficult. You have to be right twice: before stocks sell off and before they recover. The vast majority of market timers buy when the market is hot and sell when it’s not, buying high and selling low. That’s why buy-and-hold investors usually do better than timers.

This doesn’t mean that you never adjust your portfolio. But it does mean recognizing that frequent trading is typically a negative-sum game. The brokers take money out of the system via commissions, and money in cash instruments isn’t even growing at the rate of inflation.

Neil Young’s 1979 song about the passing of rock and roll legends Elvis Presley and Johnny Rotten concludes that there is more to the picture than meets the eye. That’s especially true with market timing. Because it’s really, really hard to beat the market.
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